On May 22, 2026, Trump hosted the ceremony for Kevin Walsh's appointment as Chair of the Federal Reserve at the White House. He reportedly expressed the hope that Walsh would "perform independently and excellently" and referred to the Federal Reserve as "the pillar of the global financial system" (the related statement is still from a single source, with some details pending further corroboration); Walsh took over the helm of the Federal Reserve from that day, and according to a single source, he mentioned the need to restore the credibility of the Federal Reserve and market confidence in a brief speech. During the same time window, Federal Reserve Governor Christopher Waller issued hawkish signals: against the backdrop of rising inflation risks, further interest rate cuts should no longer be considered a "default plan," and current rates should remain stable in the short term; should inflation expectations become unanchored, he would support rate hikes, and according to a single source, he even suggested that the Federal Reserve's balance sheet could still be reduced by about $300 billion to $500 billion. The market quickly pieced together Walsh's appointment and Waller's speech into a "composite signal": under the leadership of the new Chair, the Federal Reserve is not set to accelerate towards easing but is likely to maintain high rates for a longer period while continuing to withdraw liquidity. For high-beta risk assets including BTC and ETH, this means the previous speculation around "interest rate cuts and further easing" was abruptly interrupted, shifting the interest rate path and liquidity expectations towards tighter conditions, with short-term pricing pressure clearly biased to the downside.

Inauguration Day Becomes a Hawkish Declaration: Rate Cut Narrative Rewritten

The ceremony itself was interpreted by the market as a "hawkish inaugural speech." According to public reports, Trump stated in his remarks that "Walsh is expected to become a great Chair of the Federal Reserve and I hope he can perform independently and excellently" (the source of this statement is still to be verified), and according to a single source, he emphasized Walsh's profound respect for the Federal Reserve, calling it the pillar of the global financial system. Walsh reportedly stated that it is necessary to "restore the credibility of the Federal Reserve" and rebuild market confidence in the Federal Reserve. For participants who had bet on a "crypto-friendly, market-friendly new Chair," this group of keywords is very clear: the new Chair must first account for "independence" and "credibility," rather than accounting to the stock or crypto markets; the so-called "crypto-friendly" label appears to be an emotional narrative that has been over-consumed by the market.

Almost simultaneously, Waller provided more impactful technical details than the ceremony: against the backdrop of rising inflation risks, further interest rate cuts should no longer be viewed as a default plan; the current stance is to maintain stable rates in the short term, and should inflation expectations become unanchored, he would support rate hikes, noting that the Federal Reserve's balance sheet still has about $300 billion to $500 billion of reduction space. The ceremonial "independence and credibility" plays layer onto operational "denial of automatic rate cuts and potential rate hikes if necessary," directly rewriting the path that the market had grown accustomed to over the past two years—slow inflation decline → smooth rate cuts → risk assets flourish—into "higher rates for longer + liquidity tightening possibility." For high-beta assets like BTC and ETH, the valuation premium that came from the expectation of "easing returning" was quickly compressed, and the imagined space for on-chain dollar asset expansion and in-market leverage preferences was forced to downgrade, shifting the trading from betting on trend easing to re-evaluating risk-free interest rates and the scarcity of dollar liquidity.

Higher Rates for Longer: Dollar Spread and Cost of Crypto Funds

Given the backdrop where inflation is widely perceived to still be above the 2% target and notably sticky (the causes such as AI boom, oil price shocks, and tariffs remain to be verified), Waller threw out the signal of "maintaining rates unchanged in the short term, supporting rate hikes if inflation expectations lose anchoring," which essentially dismantled the previous path that "rates would default to cuts all the way." The market began to view "high rates maintained for longer" as the new baseline scenario: policy rates are no longer seen as a temporary peak that would soon decline but may linger at elevated levels for a prolonged period. For global asset pricing, this means the yields on U.S. Treasury securities and the risk-free rates for dollars are supported, and the yield advantage of dollar assets is systematically amplified, with spreads once again becoming a "gravity field" that attracts global liquidity.

When the risk-free rate is locked at a high level, holding cash in dollars and short-term Treasuries itself yields attractive returns; participating in high-volatility BTC and ETH no longer serves as a "last resort for returns," but rather as an asset allocation option requiring additional risk compensation. Most of the leverage, long-short hedging, and market-making funds in the crypto market ultimately return to the cost of dollar financing: futures margins come from dollars, and on-chain dollar asset hedging and borrowing also anchor to dollar rates. High rates raise the opportunity cost of going long with leverage, hedging shorts, and maintaining market-making inventories, forcing institutions to lower their leverage multiples, shorten durations, and tighten risk controls, returning systemic liquidity from "abundant" to "precisely priced." Under the narrative of "higher rates for longer," even if the market is still willing to bet on the long-term story of BTC and ETH, it must first yield to the re-pricing of dollar spreads and funding costs.

Another Slimming of the Balance Sheet: Global Liquidity and Crypto Water Level

When Waller threw out at the same time that "the balance sheet can still be reduced by about $300 billion to $500 billion" (according to a single source), the market truly did not hear a technical explanation but rather a roadmap of "continuing quantitative tightening." On an operational level, tapering means the Federal Reserve continues to reduce or allows maturing Treasury and MBS not to be rolled over, gradually recovering the base money that had previously been issued, compressing the reserves in the banking system held at the Federal Reserve, rather than entering a naturally halting or even expanding cycle as the market had once fantasized. The range of this number itself denies the narrative of "easing returning": even if the policy rate remains temporarily unchanged, the liquidity faucet continues to tighten.

The consequence of reduced reserves is that dollar funding becomes more "expensive" among banks: the same dollar liquidity must be lent out under higher rates and stricter quotas. As Treasuries and MBS are gradually pushed back to the market, the dollar funding rates are elevated, causing globally dollar-priced risk assets to be forced to re-evaluate under a tighter liquidity environment. For the crypto world, off-exchange fiat channels, interbank borrowing, and dollar funding pools form the main arteries for dollar-priced funds to enter exchanges and on-chain protocols; once the marginal water levels of these channels are squeezed by tapering, the growth of on-chain dollar-priced token increments will slow, the "bullets" for going long with leverage, perpetual contract margins, and on-chain borrowing pools will decrease, adding to the historical consensus that during periods of dollar liquidity tightening, total crypto market capitalization and on-chain leverage often comes under pressure, implying that this round of balance sheet slimming is more like a preventive "decompression surgery" for the risk appetite of BTC, ETH, and the entire dollar funding chain.

Trump's Verbal Independence and the Cooling of 'Crypto-Friendly' Expectations

Apart from the "decompression surgery" of the balance sheet, the symbolic meaning has also been rewritten. Many investors previously bet that the "Trump + new Chair" combination would favor easing to prop up asset prices, but during the inauguration ceremony, according to publicly broadcast records from a single source, Trump made a high-profile statement that "I hope Walsh can perform independently and excellently," and called the Federal Reserve the pillar of the global financial system (the exact words still need to be verified by multiple sources). This effectively tore the script of "White House pressure for low rates" halfway during the camera's gaze: if the president himself politically seals independence, the market can hardly leverage the logic of "political intervention for easing" to seek extra risk premiums, and the crypto market's prior fantasy of "the new government wanting a strong asset market" is forced to downgrade.

Alongside this, the narrative of a "crypto-friendly Federal Reserve Chair" manufactured by the crypto circle began to lose traction under the hawkish signals. Some community members previously tagged Walsh as "crypto-friendly" on social media, but this assertion completely lacks official policy support and is essentially just an emotional bet on personnel changes; according to a single source, Walsh emphasized in his public remarks restoring the credibility of the Federal Reserve and market confidence, rather than supporting any specific asset class. At the same time, Governor Waller issued hawkish statements indicating that "further interest rate cuts should not be viewed as a default plan, supporting rate hikes if necessary, and that there is still about $300 billion to $500 billion of room for balance sheet reduction" (the scale of tapering is from a single source). Combined, the market is more inclined to interpret Walsh as an "inflation fighter" and "credibility restorer," rather than a dovish figure endorsing risk assets, compressing the valuation factor of the "crypto-friendly political dividend" carried by BTC and ETH, with the trading structure returning to the pricing of the interest rate path and dollar liquidity itself, rather than speculation on a warming regulatory stance.

The Next Step for BTC and ETH: Focus on Interest Rate Paths and On-Chain Water Levels

Under the combination signals of Walsh's appointment and Waller's "higher rates for longer, and continued balance sheet contraction" (the tapering range is from a single source), the market is forced to revise upwards its expectations for the policy interest rate path and liquidity tightening, which poses valuation pressure on high-beta risk assets represented by BTC and ETH in the short term. The Federal Reserve's policy interest rate and balance sheet are upstream variables for the pricing of global risk assets, and historical experience has repeatedly demonstrated during rate hike cycles or periods of high rates: the direction of BTC and ETH is more easily dominated by the strength of the dollar and overall risk appetite, rather than a linear logic that "must rise as inflation expectations increase." In the current environment, they resemble assets akin to Nasdaq-type risks, rather than purely inflation hedges, with their sensitivity to interest rates and dollar liquidity amplified. What needs to be closely monitored going forward are statements, dot plots, and tapering rhythms from the FOMC under Walsh's leadership, the boundary constraints provided by U.S. inflation and employment data, and various liquidity indicators reflecting the tightness of the dollar, while combining on-chain funding water levels—including changes in the supply of mainstream dollar-pegged tokens and net inflows and outflows from exchange wallets. From a trading perspective, the current situation favors lower leverage and configurations and hedges around macro data rhythms and volatility, rather than simply betting on a one-sided bullish market of "quick easing return." For investors, merging the aforementioned macro and on-chain variables into a monitoring framework is key to judging the next risk-return structure for BTC and ETH.

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